New budget is a breath of fresh air

A Saudi man at a gasoline station in Jeddah. (AFP photo)

A Saudi man at a gasoline station in Jeddah. (AFP photo)

This column appeared in Arab News on Jan. 03, 2016:

By Rasheed Abou-Alsamh

The new Saudi budget approved and announced last week by the Cabinet is a breath of fresh air in that it addresses the budget shortfalls in intelligent and must-needed ways.

Announcing an immediate 40 percent to 50 percent rise in fuel prices was something long overdue since we have had some of the cheapest gasoline in the world for many years. With the barrel of oil at less than $40 a barrel and our government spending needing at least a price of $90 a barrel to balance our accounts, something had to give.

Our electricity and water rates are also being readjusted upward starting Jan. 11. These rises are also long overdue. Our cheap water and power rates have meant that many Saudis have wasted both by leaving their lights and air-conditioning on the whole day, even when they were not home! This wastage of our resources is sinful and should be stopped. Hopefully, the rate rises will make those who are wasteful more appreciative of our resources, which are not infinite.

Those of us who have lived abroad and have paid much more for our utilities have learned the value of these utilities and have learned how to be thrifty, turning off lights when not using them and not leaving the tap running when shaving or washing the dishes. These are simple behavioral adjustments that any human being can learn.

The introduction of a value-added tax that the Kingdom along with other Gulf Cooperation Council states are planning to introduce perhaps by next year, is also a very good move to raise income for our respective governments. This obviously would be like a sales-tax added to the cost of services and goods, except for food and other essential items. The Kingdom is also going to raise taxes on tobacco and sugary drinks, which is excellent news. There are far too many young smokers in our country, fueled in part by very cheap cigarettes. In the UK and the US, cigarettes are taxed heavily in an official effort to discourage smoking. In New York City a pack of cigarettes can cost $15 because of the taxes. Can you imagine our youth having to pay SR56 for a single pack of cigarettes? Many would stop smoking overnight. Of course, I do not think our taxes on tobacco will initially be as high as that, but I do hope the tax is significant enough to make a sizeable portion of our population reconsider their smoking habits.

Some foreign commentators have been quick to ring the death knell for the Kingdom because of the new budget, calling it austerity-driven. Obviously these people are keen to rush to these conclusions because of ill-will toward us. But they seem to have forgotten that the country has more than $600 billion in foreign reserves, and that we have gone through low oil prices before in the early 1990s, when the barrel of oil hit a low of $20. We survived that and will, God willing, survive this downturn again.

The new budget for sure has seen come cutbacks in spending on the crucial education and health sectors, but nothing very drastic. I was looking at the budgets for our state universities and was surprised that so much was being allocated for each. King Saud University in Riyadh was allocated more than SR5 billion in the new budget, while King Abdulaziz University in Jeddah got more than SR4 billion. Quality education is expensive.

As good citizens we have to do our part to help our leaders balance the books. We cannot expect the state to keep giving us everything we need for free. This is unrealistic and will bankrupt any society that tries to do so. But we also cannot forget the poorer Saudis and the difficulties they will face with higher prices and the inflation that they are sure to bring. The government has assured the public that measures will be put into place to protect them. I hope they will be enough to protect the truly disadvantaged, and that those of us with the means pay our share of these new fees and taxes in order to make a better country for all Saudis.

Learning to pay more for gasoline

The new gasoline prices are displayed at a gas pump recently in the UAE. (Photo courtesy of The National)

The new gasoline prices are displayed at a gas pump recently in the UAE. (Photo courtesy of The National)

This column appeared in Arab News on Aug. 02, 2015:

By Rasheed Abou-Alsamh

The move by the United Arab Emirates to raise the price of gasoline at the pump by 24 percent from Aug. 1 was a brave one and is a sign of the times. Once again the UAE is being a trailblazer among the Gulf countries, realizing that despite our vast reserves of oil and our low production costs, compared to the US and other countries, our oil will not last forever and we can get much more for it by exporting it rather than selling it at heavily subsidized prices at home.
The initial reaction of Gulf citizens at this news most probably is one of shock and outrage. After all, most of us have grown up with dirt cheap gasoline as our birthright, costing only a few halalas a liter. Having to pay 1.72 dirhams per liter, let alone the new price of 2.14 dirhams per liter, is outrageous to your average Gulf citizen.
But with the drop in the world price of oil from over $100 a barrel over a year ago to the current average of $52 a barrel of today, our rulers have begun to realize that despite our large foreign currency reserves that we accumulated during the years of high oil prices, which are now helping cushion our budget shortcomings, we must stop wasting so much energy domestically both in our cars and in our homes.
Most citizens think that cheap gasoline and electricity have no cost to the government or to society, but they are wrong.
Today, Saudi Arabia has to use one-third of its oil production just to meet electricity demand at home, oil which could have been exported and sold to earn much more income for our government.
And our electricity consumption just keeps on growing. The main reason of course is because of our high temperatures, especially in the summer, where everything has to be air-conditioned 24-hours a day, just to make life bearable. But then our cheap, subsidized power rates encourage people to waste electricity by leaving lights on in their homes all day long, even when they are not at home, and to leave lights on in rooms, when they are at home, in rooms that they are not using.
Some families even leave their air-conditioners running constantly when they go on vacation, even though no one is left at home during that period.
Our cheap gasoline price in the Kingdom, currently 57 halalas a liter (16 US cents) leaves us with the third cheapest gasoline in the world. Only Libya and Venezuela have cheaper gasoline than ours. But is that really something to be proud of? I don’t think so as it just encourages waste. Have you seen how many of our young men drive aimlessly around the streets of our cities on the weekends and during holidays?
If gasoline were SR1.50 a liter, I doubt we would see so many of them roaming the streets as before, which would be a big relief to the young women who get harassed by them.Saving our natural resources and using them wisely should be seen as a patriotic duty and the right thing to do for our nation’s future. Our beloved Prophet Muhammad (peace be upon him) encouraged us not to be wasteful and to help the less fortunate. Let us follow his advice and stop wasting our oil and electricity so that we can help ourselves and our future generations.

Brazilians in shock at gasoline prices: $7 a gallon!

GASOLINE prices rose again last week in Brasilia to an eye-watering R$2.94 a liter, or $1.85 a liter. In US gallon terms, that’s a whopping $7.03 a gallon, something that American drivers would never accept.

Here in Brazil, the public has grown accustomed to heavy government taxing of fuels, despite a government program started in the 1970s to use alcohol as fuel for cars in an effort to reduce dependence on petroleum products. All gasoline in Brazil has alcohol added to it, in a 75% gasoline to 25% alcohol mix, and most cars built here have flex engines that can run on either gasoline or alcohol.

Brazil has long touted its self-sufficiency in oil production, importing oil only occasionally to meet spikes in demand. Indeed, its recent find of offshore oil below a four-kilometer wide layer of salt in the seabed, has been heralded as a chance for the country to become an oil exporter.

In the meantime, however, greedy sugar cane growers have been busy exporting huge amounts of Brazil’s sugar and alcohol production because they realized they could get more money for them on the international market than at home. This has pushed local sugar prices to extremely high levels, with a 5-kilo package of refined sugar selling for R$10 ($6.30) in supermarkets. This also pushed alcohol prices for cars to R$2.84 a liter at the pump, making it uneconomical to use in flex cars. Alcohol burns faster in car engines than gasoline does, so to make it worthwhile for car owners to use alcohol as a fuel its price must be less than R$2 a liter.

The administration of President Dilma Rousseff has said that it intends to reclassify alcohol as a fuel so that it can regulate it better. Alcohol is currently classified as an “agricultural” product. It also said it was thinking of taxing sugar exports at R$4 a kilo as a possible emergency measure to force sugar cane growers to export less sugar. Incredibly, Petrobras, the national Brazilian oil company, was forced to import alcohol from the United States this year to mix in with the gasoline it sells in the country. By law all gasoline has to have at least 20% alcohol in it, so fuel distributors were blaming this requirement for the escalating price of gas at the pump.

The price of gasoline in Brasilia has already been hiked three times this year, and gasoline station owners had warned that prices would reach R$3.03 a liter this week. Thankfully, the main fuel distributor in the country, which is owned by Petrobras, announced today (19/04/2011) that it was not going to pass on another increase in gasoline prices to fuel station owners because the new crop of sugar cane has begun to be processed at sugar mills around the country, easing supplies that had been stretched because of record exports and the inter-crop period.

There are two solutions to ending the sky-high prices Brazilians pay for gasoline: Either take out the alcohol that is mixed in to it, or cut the hefty federal and state taxes that are levied on gasoline. According to the Syndicate of Fuel Station Owners of the Distrito Federal, 37.75 percent of the cost of a liter of gasoline sold here goes to taxes: 24.58 percent in local taxes and 13.17 percent in federal taxes. Cutting those taxes would certainly ease the pain at the pump that consumers are feeling, but I doubt that there is any political will to forgo this revenue either on the federal or local level. As for taking the alcohol out of the gasoline, a federal law would have to be amended to do so, which means that Congress would have to agree to this, which would take time and be politically-fraught.

Brazil needs to rethink its commitment to renewable sources of energy, such as alcohol, and make it a national priority it once was. The first step is reclassifying alcohol as a strategic fuel. Then they need to discourage sugar producers from exporting so much sugar and alcohol. Certainly, the strength of the national currency, the real, has to be reigned in by lowering the interest rate, which at 11.75% a year, is sucking in huge amounts of dollars from overseas, further weakening the exchange rate with the US dollar. Higher fuel and sugar prices are already pushing the inflation rate up, and Brazil is therefore not expected to contain inflation to the rates it predicted it would at the beginning of the year.

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